Reversible phosphorylation of proteins controls the execution and regulation of many cellular processes. A proper level of phosphorylation is critical for these processes and is controlled by the opposing actions of protein kinases and protein phosphatases. Imbalance of the two activities is known to cause many human diseases and conditions such as cancer, immunodeficiency, autoimmunity, diabetes, and obesity. The project has three long-term objectives: (1) to determine the sequence specificity of SH2 domains and protein tyrosine phosphatases (PTPs), (2) to identify the in vivo targets of SH2 domains and PTPs, and (3) to develop specific SH2 and PTP inhibitors as in vivo research tools and potential therapeutic agents. This project will focus on a subfamily of SH2 domain-containing PTPs, SHP-1 and SHP-2, as well as the prototypical phosphatase PTP1B. It consists of four specific aims. Specific Aim 1 is to determine the binding specificity of five SH2 domains in SHP-1, SHP-2, and SHIP (an inositol phosphatase) using a combinatorial library approach. Specific Aim 2 is to determine the primary sequence specificity of the catalytic domains in SHP-1, SHP-2, and PTPIB using combinatorial library methods. Specific Aim 3 is to develop isoform-specific PTP inhibitors against PTPIB, SHP-1, and SHP-2 through a combination of rational design and the construction and screening of combinatorial inhibitor libraries. Specific Aim 4 is to develop membrane permeable SH2 domain antagonists using a novel neutral phosphotyrosine mimetic. Inhibitors specific for PTP1B will provide potential treatment of type II diabetes and obesity, whereas inhibitors against Src SH2 domain is useful for treatment of cancer and osteoporosis.